China’s Chip Ambitions Fade as Chip Giant Faces Bankruptcy

Chinese chip gaint Tsinghua Unigroup's "merger and acquisition” strategy fails
July 22, 2021 Updated: July 22, 2021

Tsinghua Unigroup, a Chinese state-backed chip maker, said it received court notice that one of its creditors had initiated bankruptcy proceedings for the group, dated July 12.

Tsinghua Unigroup is a commercial arm of China’s Tsinghua University and an integral part of Chinese Leader Xi Jinping’s semiconductor self-reliance dream. One of its creditors had requested the court to initiate bankruptcy and reorganization proceedings due to Tsinghua Unigroup’s failure to repay debts and its glaring insolvency.

The company is a key member of China’s microchip national team.

According to a Unigroup filing to the Shanghai Stock Exchange, the creditor who requested the court proceedings was Huishang Bank Corporation Limited, a Hong Kong-listed bank based in Anhui, China. On Nov. 16, 2020, Tsinghua Unigroup defaulted on $198 million in bonds, resulting in a credit downgrade. And at least six more of its bonds had defaulted by June of this year, the group disclosed.

Tsinghua Unigroup is a semiconductor conglomerate under Tsinghua Holdings Co., a wholly-owned subsidiary of Tsinghua University. It was founded in 1988. Tsinghua Holdings owns 51 percent of Tsinghua Unigroup, and its Chairman Zhao Weiguo’s management firm holds the remaining 49 percent.

With the Chinese Communist Party (CCP) support, Tsinghua Unigroup began acquiring and merging semiconductor-related technology companies in 2013. It has formed a large semiconductor conglomerate, one of China’s largest, with 286 consolidated subsidiaries in just a few years and accumulated nearly $46.4 billion in assets.

Its subsidiaries include Tsinghua Unisplendour, Unigroup Guoxin Microelectronics Co., UNISOC, and Yangtze Memory Technology Corp (YMTC).

Although backed by the CCP and the prestigious Tsinghua University, Tsinghua Unigroup’s subsidiary companies didn’t utilize the university’s technological capabilities for research and development. Instead, they focused on acquiring technology companies.

Tsinghua Unigroup Uses ‘Merger and Acquisition’ as a Short-cut

In 2013, Tsinghua Unigroup and its subsidiaries started their large-scale merger and acquisition strategy. The group spent $1.78 billion and $910 million in 2013 and 2014 to acquire two IC design companies listed in the United States, Spreadtrum Communications and RDA Microelectronics. It then merged them into UNISOC, a company that designs and produces mobile phone chipsets.

“Research and development do not enable us to obtain intellectual properties and IT patents quickly. Even if you can do it, you can’t break through the patents. What I want is to change the way the game is played,” Tsinghua Unigroup Chairman Zhao Weiguo said on China’s CCTV in November 2017. “The acquisition of Spreadtrum and RDA allows Unigroup to enter the field of mobile chip and quickly position ourselves as world’s third.”

However, UNISOC’s mobile chip business has long been concentrated in the low-end market and is reportedly popular in the African market. UNISOC’s latest 6nm 5G chipsets are still produced by TSMC, a semiconductor manufacturing company in Taiwan.

In 2015, Tsinghua Unigroup allocated another US$3.78 billion in an attempt to acquire stakes in Western Digital Corp. (WD), a U.S. hard drive manufacturer, but ultimately failed. In July of the same year, it again made an unsuccessful $23 billion sky-high bid for U.S. memory-chip maker Micron Technology Inc.

After that, Tsinghua Unigroup launched merger and acquisition bids for some Taiwan’s semiconductor companies. From October to December 2015, it allocated more than $3 billion in an attempt to acquire shares in Taiwan’s three major IC packaging and testing companies—Powertech Technology, Siliconware Precision Industries, and ChipMOS Technologies. The attempts failed.

Zhao even set his sights on Taiwan’s famous IC design company, MediaTek, and the world’s number one foundry company, the Taiwan Semiconductor Manufacturing Company (TSMC), also known as Taiwan’s “sacred mountain.”

Tsinghua Unigroup’s aggressive bids to acquire Taiwan’s IC companies made Taiwan’s academic circles become highly guarded. More than 500 Taiwanese scholars and experts began to boycott Chinese-funded mergers and acquisitions of Taiwan’s IC factories.

“It doesn’t matter how many shares [Tsinghua Unigroup] gets. If you let them get into your company, they will find a way to take over. Look at what happened when Taiwan’s Chinese Nationalist Party cooperated with the CCP. That was a history lesson; we shouldn’t forget it,” Lin Zongnan, an Electrical Engineering and Telecommunications professor at National Taiwan University, said in an interview with Radio Free Asia.

US Senators Ask to Blacklist Yangtze Memory Technologies Corp

Yangtze Memory Technologies Corp (YMTC) was perhaps the only highlight for Tsinghua Unigroup. The CCP invested an enormous sum of money to hire top experts from Taiwan to build YMTC.

In October 2015, Tsinghua Unigroup hired Gao Qiquan, known as the “Godfather of Taiwan’s DRAM (Memory Chip).” After Gao moved to the company, it developed a cutting-edge flash memory.

According to a February report by Bloomberg, the state-owned China Integrated Circuit Industry Investment Fund contributed 49 percent of the initial capital of YMTC through direct and indirect shareholdings in December 2016. Many suggest that Unigroup shouldn’t be the proud owner of YMTC.

Last year, YMTC’s release of its 128-layer 3DNAND flash memory put the company on the map.

However, on July 12, Rep. Michael McCaul (R-Texas) and Sen. Bill Hagerty (R-Tenn.) sent a letter to the U.S. Secretary of Commerce, Gina Raimondo, urging her to add YMTC to its export control entity list. YMTC allegedly has a relationship with the Chinese military.

The company’s aggressive merger and acquisition strategy has brought high costs to the group, resulting in mounting debt.

According to Tsinghua Unigroup’s financial report for the first half of 2020, the group’s total debt reached $31 billion. When Zhao took office in 2012, Tsinghua’s debt was only about $700 million. The company debt rose almost 44 times in just eight years.

Liu Gongchang, an independent media analyst at Sina Finance, said Tsinghua Unigroup had blindly expanded and had not engaged in research and development, which led to today’s insolvency.

In 2015, Taiwan’s Foxconn Technology Group Founder Terry Gou responded to the stories that Zhao was eyeing TSMC and foresaw Tsinghua Unigroup’s predicament today. Gou replied that the world’s semiconductor godfather and chairman of TSMC, Morris Chang, has more than 60 years of semiconductor experience, which Zhao can’t buy with money.